The climate crisis has made it imperative for businesses to act to reduce their carbon emissions.
The UK, leading global efforts, is committed to achieving net-zero carbon emissions by 2050, setting the bar for both corporate and financial businesses. Singapore followed the UK’s lead with its Green Plan 2030, which will drive sustainable growth through innovation, international collaboration, and advanced technologies.
For management accountants, these initiatives present a unique opportunity to play a key role in steering organisations through the complexities of net-zero transition planning. It’s not just about responding to climate challenges — it’s about embedding sustainability into strategic planning that will shape the future of business.
Findings from the Navigating Net Zero Transition Planning: Recommendations for Management Accountants report revealed that many organisations still lack transition plans that align with the UK’s Transition Plan Taskforce (TPT) disclosure framework, exposing a significant gap in current efforts. The report’s analysis is from a four-month observation of a transition planning process within a conglomerate organisation that spans numerous industries and is guided by the TPT’s four qualitative components of ‘good practice’.
‘The [research] focuses on a thematic analysis of published transition plans from FTSE 100 and STI businesses ... and shows that organisations have a weak focus on some of the Transition Plan Taskforce’s pillars of governance, for example, short-, medium-, and long-term actions needed to achieve net zero or governance and accountability measures to ensure plan delivery and accurate reporting’, said Raluca Stroe, manager, Research and Development, at AICPA® & CIMA®, together as the Association of International Certified Professional Accountants®.
One significant barrier, per the report, is the TPT disclosure framework’s lack of climate-adaptation guidance, which left the surveyed organisation vulnerable when it comes to building resilience against climate-related risks. The research revealed data gaps due to data limitations and an absence of financial teams in the transition planning process because of weak cross-functional collaboration.
However, these issues aren’t insurmountable challenges; the report provides recommendations to push through these barriers and strengthen organisations by driving effective, long-term transition planning.
Report reveals that climate-adaptation measures are needed
Although the TPT disclosure framework emphasises emissions reduction, it neglects climate adaptation measures, which have impeded organisations’ ability to develop comprehensive climate-resilient strategies, per the report.
By focusing primarily on mitigation, the framework led the surveyed organisation in the report to overlook the steps necessary to meet the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to promote climate resilience.
‘Including climate adaptation measures in your transition planning is important. This involves not only focusing on reducing emissions but also preparing for a range of potential risks arising from climate change. These risks can include physical risks, such as extreme weather events, and transitional risks, such as regulatory changes and market shifts. Additionally, addressing reputational risks is essential to maintain stakeholder trust and support’, Stroe said.
Adaptation measures are crucial for enhancing an organisation’s resilience against climate-related risks. They also provide a valuable opportunity to align with TCFD requirements and conduct effective transition planning, allowing the planning team to establish more detailed adaptation responses to the material risks identified in the TCFD recommendations and helping the surveyed organisation understand the broader purpose of its transition plan, as stated in the report.
Organisation-wide collaboration is needed for accurate data
‘One of the main challenges the report highlights is the lack of detailed emissions data and limited access to it for each business unit, making it difficult to identify specific activities to decarbonise and measure the effectiveness of those activities’, Stroe said.
These data gaps also triggered concerns about the organisation’s credibility and the potential for accusations of greenwashing. According to the report, these concerns created anxiety amongst the team, leading them to redirect their attention to a clearer and more tangible aspect of the transition planning: developing a decarbonisation plan.
Based on the report, observations suggest that transition planning teams should consider each TPT pillar of governance and the limitations as a work in progress, emphasising the need to improve capabilities across multiple pillars simultaneously rather than trying to perfect each aspect one by one.
Effective net-zero transition planning also requires a whole-of-organisation transformation, supported by cross-functional collaboration and strong leadership from the executive level. According to the report, the observed organisation did not engage the finance team in the process, which stemmed from the transition planning team’s concerns that the board and finance function might dismiss their work on the grounds of data limitations.
As a result, the finance team was viewed solely as an approver rather than a collaborator. This approach excluded management accountants from the strategy and planning process and contradicted the guidance provided by the TPT, which emphasised the importance of supporting transition plans with strong financial planning.
‘The report emphasised the need for organisational transformation to promote collaboration and early involvement of financial professionals in transition planning. [The finance function] plays a crucial role in financial planning, risk management, and business strategy’, Stroe continued.
From a management accountant perspective, your expert insights can advise on the integration of transition planning decisions with existing budgeting practices, divisional performance metrics and, to an extent, risk management, allowing you to become integral to embedding sustainability into the company-wide systems that guide its actions.
Report offers tactics for effective net-zero transition planning
Establishing a clear strategy is critical for organisations to overcome the challenges outlined in the report. You’ll want to start by defining a clear objective and vision for your net-zero transition plan, and leaders need to encourage cross-departmental collaboration with support from executive leadership.
By integrating organisational financial planning and risk management into corporate net-zero transition planning, your organisation can create actions that are feasible and sustainable.
Management accountants’ knowledge of corporate finances and ability to analyse data are two crucial contributions to turning goals into actions.
Download the Navigating Net Zero Transition Planning: Recommendations for Management Accountants report to read more disclosure insights and valuable recommendations to enhance transition planning processes.